Global market trends were little changed on Friday with the dollar continuing to gain from a lack of Euro confidence. Markets also failed to see compelling reasons to buy other major currencies given specualtion that central banks outside the US would maintain a dovish policy stance. There were no fireworks in China as markets re-opened after the new-year holidays with significant tensions ahead of the latest round of US-China trade talks scheduled for later this week.
Pound Sterling (GBP)
There was little further reaction to Thursday’s Bank of England statement given that policy moves will be highly dependent on Brexit developments. Global risk conditions were slightly more fragile which limited potential Sterling support. Political discussions between UK and EU officials continued and Prime Minister May’s met Irish Premier Varadkar, although there were no significant expectations of a near-term breakthrough while May also rejected the Labour Party’s call for a customs union. GBP/EUR settled near 1.1420 while GBP/USD consolidated below 1.2950 ahead of the latest UK GDP and industrial production data.
Italian industrial production data was weak with a second successive monthly contraction, maintaining concerns over the Euro-zone growth outlook. Higher domestic yields reinforced fears that the Italian debt crisis could return quickly and underlying Euro sentiment remained weak with expectations of further net losses. There were, however, reports of significant central bank buying which curbed losses to some extent with EUR/USD consolidation near 1.1320. The Swiss franc ‘flash crashed’ in Asia on Monday before regaining losses quickly as EUR/USD held little changed while Scandinavian currencies remained under pressure.
There were no significant US data releases on Friday while San Francisco Fed President Daly stated that a slowdown in growth would lessen recession risks within the economy. The US dollar continued to gain net support from concerns surrounding the global growth outlook and expectations that the US economy would continue to out-perform. The dollar posted 6-week highs as commodity currencies remained under pressure amid caution ahead of the re-opening of Chinese markets. There was a measured reaction on Monday with USD/JPY again testing 110.00 despite concerns over the risks of another US government shutdown.
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